Political instability is another factor that can boost gold price. For the same reasons that were mentioned earlier, investor concerns about wars, civil wars, and international tensions can increase demand for gold during times of financial stress. In the event of a severe political crisis, gold's potential role as a "currency of last resort" provides an additional incentive to hold it.
To some extent, political concerns will also be picked up by financial stress measures, so separating the two is not entirely straightforward.It is difficult to test for the impact of political instability because there are no clear, objective measures of political risk.
However, political factors appear to have played a particularly significant role in driving gold at specific times. In particular, events like the Iranian revolution and the Soviet invasion of Afghanistan appear to have boosted gold prices in the late 1970s and early 1980s. Gold prices also skyrocketed immediately following the attacks on September 11, 2001, in the United States.
